Increasing traffic congestion.  In it latest transport policy guidelines dated December 2001, the European Commission expressed growing concern about the effects of road traffic congestion. Its most recent study on the subject showed that the external costs of road traffic congestion amount to 0.5 % of Community GDP. Traffic forecasts for the next 10 years show that, if nothing is done, road congestion will increase significantly by 2010. The costs attributable to congestion are calculated to increase by 142 % to reach EUR 80 billion a year, approximately 1 % of Community GDP.
Other figures indicate that citizens of EU countries spend an average of one hour a day on the road, with more than 30% of this time spent in traffic jams – and that this time is increasing year-on-year. Clearly anything that can help to reduce this, by providing real-time traffic data to help drivers avoid jams and use alternative routes, is going to be popular. Even if this is not possible, a means of communicating and receiving news and information-based services while stuck in traffic could help to make the time spent more productive and even perhaps entertaining.

Road safety. Consumers around the world are increasingly concerned about road safety. An in-car telematics device that automatically notifies emergency authorities in case of an accident, can reduce the time it takes for an ambulance to arrive on scene, and thus reduce the number of overall traffic casualties. Governments and companies around the world are working to improve safety, mobility, efficiency, and productivity. Telematics can play a major role in this effort.

Location technologies have become much cheaper. The most common technology used to locate a car is the Global Positioning Systems (GPS), although the EU is expecting the Galileo system to become even more effective in a few years time. The first GPS receiver was far too expensive for non-professional use, but the price has now come down to about $15 a unit with further reductions in prospect.

Wireless networks are well established. Telematics applications use mobile communication between an in-car device and a central unit. Mobile networks already cover virtually all of Europe, with GPRS data services being rolled out everywhere prior to 3G. The communication infrastructure necessary for telematics is therefore now in place. In addition to this, of course, mobile operators have invested billions in 3G licenses and network infrastructure. For them, telematics presents a whole new market opportunity for gaining returns on those investments.

The automobile market is mature. The European market for passenger vehicles is mature, and increasing competition continues to erode profit margins. Car makers see telematics as a way to differentiate their products. Also, to establish a stronger relationship with their customers and to increase revenues during the lifetime of a car. Indeed, virtually all the major car makers including Audi, BMW, Citroen, Fiat, Ford, Mercedes, Renault and VW either have or will shortly launch initial telematics services. General Motors’ OnStar service is the clear market leader and claims to have over 2 million users in the US already, and adding over 100,000 a month.

Telematics services are complex and require multifunctional skills. Specialised knowledge from at least five major industries is required to make telematics services work - computer hardware and software, consumer electronics, mobile communications as well as automotive. None of these industries can deliver telematics services on their own. This is good, in the sense that there are a wide range of opportunities to enter the market.  However, it typically takes a long time to establish partnerships and this could severely delay telematics market growth.

Technology push, not market pull. It is still unclear whether European consumers are actually willing to pay for telematics services. The initial response from European consumers has been rather luke warm - much less than in the US. For example, General Motors launched its OnStar service in Germany two years ago. However, so far few car buyers seem to make the effort to open their OnStar account, even when the service is free of charge for the first year. However, this may have something to do with the services offered. OnStar includes services like roadside assistance, automatic airbag deployment notification, stolen vehicle tracking and guidance for lost drivers. There are indications that these (designed as they were for the US market) may not be the services to best capture the imagination of European drivers. 

There are no standards for telematics technology. As of today, there are no common technology standards and protocols for telematics. This may suit car makers striving for differentiation but possibly not their technology partners. Also, this creates a barrier for support organisations – such as car roadside assistance and garage services. These will be disinclined to invest in technology that is specific to each make of car.

The pace of ICT technology development versus the life span of a car. The pace of innovation in ICT markets is much faster than in the car industry. Developing a car takes an average of 5 to 6 years and the product life is about 10 years. Most ICT components (such as displays and integrated circuits) have a life span of 18 - 24 months at most. This makes equipping their vehicles with telematics technology more problematic for car makers. Of course, it may also represent a sizeable aftermarket.